A look ahead: 2012 is Microsoft’s turning point

For Microsoft, the message of 2011 was "wait until you see what happens next …

2011 was in many ways a quiet (albeit thoroughly profitable) year for Microsoft. The company made big, important announcements—the Nokia partnership, the Windows 8 reveal—but neither had much impact in 2011. Nokia has released only a couple of handset models in a few countries this year, and Windows 8 is not yet in beta.

2011 for Microsoft was all about telling us what to look forward to.

2012 will be when that talk becomes real. 2012 will be when lots of Microsoft's talk becomes real.

Microsoft has talked of its "three screens and a cloud" strategy—the plan to have Microsoft software on the PC (which, in Redmond's view, includes the tablet), the TV, and the phone, with the Microsoft-powered cloud tying everything together. In 2012, this strategy is going to become visible in a way it hasn't been before.

For businesses and system administrators, Microsoft has long provided a kind of "common platform." Windows and Windows applications can be managed and deployed in consistent ways, and different business applications all tap in to common infrastructure like Active Directory and Windows Installer and Group Policies and so on.

But for end-users and consumers, the story has been very different. Historically, Microsoft's attitude towards consistency and commonality has always been lackadaisical. Windows Phone doesn't look or feel like Windows 7. Until lately, the Xbox 360 dashboard looked like neither. Office always worked in a way that was downright weird and totally different from the rest of the operating system.

This was deliberate to some extent—distancing the gamer-oriented Xbox from the staid and business-like Microsoft brand, for example—but it has a downside, as it means that, for consumers the different Microsoft platforms don't really form a coherent ecosystem. You might like using Windows 7 on the desktop, but that counts for nothing if you want a phone or tablet or gaming system or entertainment system.

That's starting to change.

The most important event for Microsoft in 2012 will be the release of Windows 8. Windows 8 will fuse Microsoft's long-standing tablet dream—the tablet as a kind of PC—with the post-iOS notion of "touch" and a new "design language"—that is, a standard look and feel, a standard set of idioms and concepts—known as "Metro." And Metro is going to be everywhere.

Some of the Metro pieces are already on the market. The first is Windows Phone. Windows Phone is still struggling to gain traction with users, and 2012 will be a critical year. Microsoft is counting on Nokia to be able to expand the reach and market share of its phone platform. Early indications in the few markets that Nokia is selling its first Windows Phone models, the Lumia 710 and Lumia 800, are inconsistent. Reports from mobile networks and resellers are positive, but analysts are claiming that the phones are not selling well.

The Xbox 360's dashboard update last month gave that platform a new Metro-style user interface. It also marked the start of the Xbox 360's transition from a gaming platform into an entertainment platform. The Xbox 360 has long served in some capacity as a media system in addition to its main role as a gaming device. For example, LIVE Gold subscribers can use it to stream Netflix; it also works as a Windows Media Center Extender. But these features have been narrow—it couldn't tap into the growing number of catch-up video-on-demand and streaming services that many broadcasters offer, for example—and the Xbox wasn't a general-purpose media platform.

With the new dashboard, it's now turning into one. Many broadcasters are already supported with more coming soon. And the new features are just "applications," enabling new ones to be trivially added whenever the company (and broadcasters) want. The Xbox 360 is now relevant to, and attractive to, even those without any interest in playing games: Microsoft at long last has a system for any living room.

It's not just the three platforms that'll pick up Metro styling. Microsoft has started to roll it out to Web properties—even those that aren't consumer-facing, such as its Windows Azure site—management interfaces for server applications, and more. The design will become a unifying element across the company's range of products.

How this will work for complex applications such as Office remains a concern—but in a change from practices of old, the company is taking design seriously, as the company's design lead Steve Kaneko told the Verge in an interview earlier this month.

Presenting a common message to consumers now matters for Microsoft, and over 2012, the Metro look-and-feel will increasingly become the Microsoft look-and-feel.

"The cloud" isn't to be forgotten either. Windows 8 will support the use of Windows Live credentials to log in. Settings and applications can be shared between computers, all using "the cloud"—in particular the Windows Live and SkyDrive services. Windows Phone similarly leverages and integrates SkyDrive and other cloud services. These consumer-oriented cloud services are being opened up to developers, too, with an improved SDK for both Windows Phone and Windows 8.

Much hinges on Windows 8's reception. If Windows 8 doesn't appeal to consumers, Microsoft's position will become very difficult. A flop won't be fatal. Microsoft is too big a company, with too many successful, diverse products, to fail just because one product does badly, and that's true even for a product line as important as Windows.

But the Windows 8 release will be instrumental both in defining the PC's role in the future, and Microsoft's role in the tablet market. For all Microsoft's position of the tablet as a kind of PC, Windows 8 could succeed in one or other of the tablet and desktop markets and fail in the other. Failure in the tablet market is perhaps the more grave. It may be awkward and embarrassing for Microsoft if desktop users to stick with Windows 7 on the desktop, but this has happened before, with many users sticking with Windows XP instead of switching to Windows Vista, and the long-term impact was slight.

Failure in the tablet would mean conceding that market to Android and iOS, until and unless Windows 9 does something so tremendous that it makes the tablet market simply irrelevant. Either way, the PC isn't going to disappear, and it's certainly not going to be replaced by tablets across the board. But it offers little in the way of growth potential, and with tablets filling some of the roles traditionally filled by PCs, PC replacement cycles will become longer. That's not good for Microsoft.

Success in the tablet market, however, will reap rewards beyond the tablet sales. Popular Metro-style tablets are almost certain to have a positive influence on (Metro-style) Windows Phones. If people like the interface, and recognize that it works well, they're going to want it in more places. To really take advantage of the possible halo effect, Windows Phone's interface will have to change, too, to handle some of the new gestures and concepts that Windows 8 introduces.

The risks posed are substantial. If consumers don't buy in to the Metro vision, if they shun Xbox 360, shun Windows Phone, shun Windows 8 tablets, if their reaction is that they hate it, Microsoft is damaging not just a single product, but its entire product line up. The company will survive, but it will be a lesser company if it does. Redmond has never tried to pull off such a big move. The closest it came was with Windows 95, but although it did introduce a new look-and-feel that spread to most Microsoft software, this was a far more conservative change.

But if the gamble pays off, the rewards will be considerable too. Microsoft could take a big chunk out of the tablet and phone markets, a chunk that will only expand as the value offered by its unified platform grows larger. A good 2012 will cement Microsoft's dominance for another decade.